The Investigator and the Money Laundering Regulations 2003

When the Money Laundering Regulations 2003 became effective on 1st March 2004, the landscape changed significantly for those Corporate and Private investigators who specialise in investigating internal fraud for their corporate clients. This piece of criminal legislation offers the potential to bring investigators into conflict with the Criminal Law.

The legal remedy available to companies who find themselves defrauded has always been and still is, to report the offence to Police. However, fraud is no longer a Policing priority, with the result that some Fraud Squads have been disbanded and those that remain are often poorly resourced. There are considerable merits in deploying an Investigator to tackle internal fraud, in order to gather evidence and attempt to trace the monies, with a view to providing material that will result in the quiet departure of the errant employee from the company. This also avoids the negative publicity associated with a case in the criminal courts.

However, external Accountants and Auditors must now make suspicious activity reports (SARs) to the National Criminal Intelligence Service (NCIS) when they know or suspect that monies appropriated represent the proceeds of crime. So whilst a company may have chosen not to report the fraud to Police, the Accountant or Auditor falls within what is now known as the ‘Regulated Sector’ and is legally bound to make a report, when he/she discovers the appropriated funds in the company’s balance sheet when the accounts are audited. After receipt in NCIS, the report is processed and forwarded to law enforcement to assess whether the circumstances should be investigated.

The dilemma for the company and the Investigator alike is the approach they should adopt when the fraud is initially discovered. Do they make an SAR to NCIS or not?

If they make an SAR and the Investigator interviews the employee, then they are technically guilty of ‘tipping off’ that person under Section 330 Proceeds of Crime 2002 (primary money laundering legislation) by prejudicing an investigation which might be conducted, knowing that a report to NCIS has been made. If no SAR is made immediately, then the Investigator may technically be guilty of ‘prejudicing an investigation’ under Section 341 of the above Act. n the basis that when Police receive the SAR, they could argue the Investigator removed any investigative initiative that may have been available to them.

Therefore, any Investigator must encourage their client, if the intention is not for Police to investigate the fraud and even though the company falls outside the ‘Regulated Sector’, to make early disclosure of an SAR to NCIS. The SAR must be clearly marked that the company intends to rely upon an internal or civil remedy and not later investigation of Fraud by Police. The Accountant will do it anyway when the client is audited. The Investigator then carries out the investigation, gathers the appropriate material and attempts to trace the funds appropriated. The employee can then be interviewed and suitably dealt with.

There will be occasions when the employee needs to be dealt with immediately because they represent an ongoing risk of committing further acts of Fraud. In this circumstance, submit an SAR, outline what action has been taken and that investigation of Fraud by Police is not required.

Cliff Knuckey

Cliff Knuckey is the Managing Director of London based RISC Global Ltd, an anti-money laundering consultancy specialising in helping companies in the newly regulated sectors.

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This article was first published in Investigate, the magazine of the Association of British Investigators.